Ohio Third Frontier should last beyond plan for four years

The Ohio Third Frontier program's original plan was to spend $700 million over four years.

The real timeline probably will be longer.

The state has backed off from the spending schedule it previously set up for the economic development program, which was designed to spark the development of new technologies and help the state shed its Rust Belt reputation.

The Ohio Development Services Agency, which manages the day-to-day operations of the Third Frontier, originally planned for the program to give out $175 million in grants and loans each year, from 2012 through 2015.

Easier said than done.

The development services agency and the Third Frontier Commission — the board that decides which high-tech projects and companies will receive funding — made several changes to the various programs within the Third Frontier a few years ago, after voters passed a bond issue that pumped an extra $700 million into the program. Those changes caused delays, where were exacerbated when the commission started demanding better information from some organizations submitting proposals.

As a result, the commission didn't award the full $175 million in either 2012 or 2013. An extra $105 million from those years rolled over into this year's budget.

The rate of spending has picked up: The commission just last week gave out $85 million, roughly half of which went to organizations in Northeast Ohio. At this point, however, the Ohio Development Services Agency isn't trying to catch up with the spending schedule it set up for the Third Frontier a few years ago.

Instead of mixing the $105 million rollover with a full base budget of $175 million, the agency reduced the size of the 2014 base budget to $100 million. That's a 43% decrease, if you don't count the rollover.

The change hasn't generated debate among members of the Third Frontier Commission. Granted, it's not like their budget is being shortchanged. Combine the base budget with the rollover, and you've got $205 million for 2014. That's more money than the commission typically spends in a year.

But why didn't the development services agency set up a plan for the commission to catch up with the original spending schedule?

Doing so would involve giving out the full base budget and the rollover, a total of $280 million, in one year. Setting the budget at $205 million made more sense, given the number and size of projects asking for funding this year, according to Norm Chagnon, deputy chief of the state's Office of Technology Investments.

The lower budget won't handcuff the commission: Chagnon noted the board has the authority to spend more than $205 million, if it sees enough big proposals that look particularly promising.

"No sunset'

So far this year, the commission has awarded about $115 million. Most of the money was given out at last week's meeting where the commission approved two big proposals through its Technology Commercialization Centers program — a program designed to fund projects that could have a significant impact on Ohio's ability to develop high-tech products.

One of those projects was led by University Hospitals: The commission awarded a grant that could reach $25 million to UH's Harrington Discovery Institute, a nonprofit that aims to help scientists from around the world develop new drugs and commercialize them in Ohio.

Since half of this year's budget has been awarded, it's feasible — but by no means guaranteed — that the commission could spend its entire $205 million by the end of this year.

Even if it manages to do so, however, $352 million would remain in the Third Frontier program.

Would the commission be legally required to cram all of that money into next year's budget? Chagnon says no.

The amendment to the Ohio Constitution that allowed the state to raise $700 million through the bond issue said the commission had to spread the money over at least four years. It doesn't stop the commission from spending it over a longer period of time, Chagnon said.

“There's effectively no sunset for our authority over those dollars,” he said.

Quality over speed

The commission's director, David Goodman, told Crain's that he's less concerned about spending the money quickly and more concerned about spending it well.

Over time, however, all of it will be given out, said Goodman, who became the commission's leader last year, after Gov. John Kasich named him director of the Ohio Development Services Agency.

“It will be spent, and it will be spent wisely,” he said.

Nowadays, John Huston is comfortable with how the Third Frontier Commission awards money, even if it doesn't award as much in a given year as it initially planned.

A former member of the commission's advisory board, Huston was one of several people who criticized the Third Frontier a few years ago for not granting awards fast enough.

Last week, however, the commission showed that they're willing to award significant amounts of money, assuming they see quality proposals, according to Huston, founder and manager of the Ohio TechAngels, a group of individual “angel” investors in Columbus.

The commission also showed they can look beyond plans and budgets when necessary, Huston said. He noted how the group last week awarded $26 million in loans to investment funds throughout Ohio that invest in early stage tech companies. The original plan was to award $20 million.

“I have confidence that they have flexibility,” he said.

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